Intellectual property law is good. Excess in intellectual property law is not. This blog is about excess in Canadian and international copyright law, trademarks law and patent law. I practice IP law with Macera & Jarzyna, LLP in Ottawa, Canada. I've also been in government and academe. My views are purely personal and don't necessarily reflect those of my firm or any of its clients. Nothing on this blog should be taken as legal advice.

Saturday, April 28, 2007

Should a Court award damages of US $65,000,000 for the loss of a pair of pants by a dry cleaner? This is not a hypothetical question and I’m not making this up. See the Washington Post, April 26, 2007.

Does this sound outrageous?

The plaintiff - who happens to be a lawyer and an administrative law judge by the name of Roy Pearson - in Washington, D.C. is suing his former dry cleaner. Among his other claims is $15,000 for car rentals so he can rent a car every weekend for 10 years to get his dry cleaning done elsewhere, since he was unhappy with the “poor service” from the defendant. Clearly foreseeable? We’ll have to wait and see.

What about the claim for “mental suffering”? I suppose that even lawyers and judges have feelings. Again , the suspense is gripping.

The original value of the pants? Apparently about $150. After all, they had red and blue pin stripes.

Here’s how the story started, according to the Washington Post:

[The clearness] gave Pearson a check for $150 for new pants. A few days later, the Chungs, Korean immigrants who live in Virginia and own three D.C. cleaners, told Pearson that he was no longer welcome at their store. That dispute was eventually put aside, and Pearson continued to use the company.

Move ahead to 2005, when Pearson got a new job as a judge. He needed to wear a suit to work every day. He dug out his five Hickey Freeman suits and found them to be "uncomfortably tight." He asked Custom to let the waists out two or three inches. Worried that he might be up against his Visa card limit, he took the suits in for alterations one or two at a time.

According to a statement filed by both parties in the lawsuit, Pearson dropped off one pair of pants May 3 so he could wear them to his new job May 6. But on May 5, the pants weren't ready. So o Chung promised them for early the next morning, but when Pearson arrived, the pants weren't there.

But what if there were a statute that allows for recovery of $1,500 a day in damages for violation of the District’s consumer protection laws and there were allegedly 12 violations over 1,200 days, times three defendants? Well, apparently that is the basis of Judge Pearson’s claim. As the Washington Post points out, “a pant leg here, a pant leg there, and soon, you're talking $65 million.”

BTW, the Judge has apparently been offered $12,000 to settle this case and has refused. Not enough, apparently, even to cover his rental car expenses.

The first moral of the story? Don’t mess with Judge Pearson. Other possible morals will follow below.

Now, what in the world does this have to do with copyright, for those few who may not already have guessed?

What if there were a statute that says that downloading or sharing - even inadvertent sharing - of a song worth $0.99 at the most gives rise to minimum statutory damages of $750 per song and up to $30,000? Or up to $150,000 per song if the infringement is “committed willfully”? Well, there is such a statute and such a provision. In the USA, it’s the Copyright Act, 17 U.S.C. §504(c).

And in Canada, in our modestly Canadian way of imitating the Americans but with some effort at restraint, we have statutory damages covering a range of only $500 to $20,000 per song. Yep. Only $20,000 max. After all, we’re Canadian, eh, and we’re not trigger happy litigants or excessively greedy, right? I suspect that the difference between the CDN and US figures is roughly equivalent to the difference between being shot in the head at point blank range by a 357 Magnum or a Colt 45. The latter is even bigger - but the result is about the same.

Well, it turns out that the lower amount in Canada not from lack of effort, as we shall presently see.

Now this means that any ordinary kid - perhaps your kid - or even music loving adult - perhaps you, dear reader - who downloads 5,000 songs (not a lot these days), could seriously incur some big time financial liability. BTW, an 80 gig iPod can hold about 20,000 songs, which is quite possibly why they are so popular and probably nobody has 20,000 “paid for” songs on their iPod at a buck a piece.

Never mind that one "unauthorized" download is not one lost sale. Indeed, the best independent analysis - from Oberholzer and Strumpf - suggests that unauthorized P2P file sharing activity may actually benefit the record industry overall. And many Indie artists and labels agree.

The statutory damages concept in copyright was, of course, never meant to be used against ordinary individuals, or so my then friends in the music industry told me at the time it was passed in Canada in 1997. But that was then and now is now.

It has resulted in the legal extraction of settlements in the range of or even exceeding USD $5,000. That’s a year of tuition for many kids in the USA, (or a month or so at Harvard).

As we all know, the CRIA tried to imitate its American big brother with similar litigation in Canada. It failed - not so much because Canada’s copyright laws are lax, which they are not, but because Canadian courts imposed reasonable standards of evidence that CRIA was unwilling or unable to meet and respect for privacy law. True, Canada’s private copying levy scheme - passed mainly at CRIA’s behest - effectively legalizes downloading and this did not help the CRIA. The CRIA should have been more careful what it wished for. Nonetheless, the CRIA has attempted to use this setback - largely self inflicted - as an excuse to ratchet up Canadian copyright law to be like the American statute. And we all know how well the American system is working, right? (Full disclosure - I acted against the CRIA on this case and I have other clients who oppose the levy scheme).

The statutory damages provision in the Canadian Copyright Act were introduced in Bill C-32, which was rushed into law in 1997. This provision was mainly pushed along by forces in the music industry. David Basskin, who was then and now the President of the CMRRA, told the Senate on April 15, 1997:

We particularly support the creation of a statutory damages remedy and other measures in the bill that will make it more affordable for copyright owners to protect their copyrights. As things now stand, it is almost impossible for anyone to afford a copyright infringement suit, meaning that infringers can hide behind the cost of litigation. The elements of the bill that make it a little more affordable for copyright owners to pursue remedies are very important. They are a good balance of the interests of both the public and the copyright owners.

(emphasis added)

Every business says that it wants more affordable litigation (although the high cost of Copyright Board proceedings invariably benefits collectives by discouraging objectors). But, in Canada, only copyright owners get to sue - at their option - for minimum damages that are hundreds or thousands of times (or even more) greater than actual damages, if any, assuming that damages had to be provable in the normal way. According to Oberholzer and Strumpf, there would typically be no actual damages in P2P cases.

And there was the remarkable exchange - frankly more like a duet - between the Hon. Beth Phinney, former Member of Parliament, and the late Bernard Mayer, lawyer and film industry lobbyist, on November 6, 1996 in the House Committee. Mr. Mayer, who was appearing with the Canadian Bar Association delegation, tried to up the ante to $100,000 - to be more on par with the Americans at the time:

Ms Phinney (Hamilton Mountain): Thank you for coming this evening. On proposed section 38.1, you say that creating a statutory damages regime is likely to make the civil enforcement process more effective. So we're glad you agree with that. On proposed subsection 38.1(1), you have noted that the ceiling would be $20,000 and you're wondering if this would be adequate. You mention that for certain circumstances in the United States it could be $100,000. Would you expand on that and tell us why you are not satisfied with the $20,000?

Mr. Mayer: I think in looking at the whole subject of statutory damages you have to bear in mind that the damage range is merely a range that would be applied by the court. It has been pointed out that there are a number of very valuable programs, for example computer programs, that have a value significantly in excess of $20,000. Therefore, the likely utility of the provision would be enhanced if the amount were increased. I think this would not be unfair to defendants because the court still has a range and I think it is very unlikely that any unduly large awards because of that increase would be made.

Ms Phinney: So when you say that if we raise it to $100,000 it would significantly increase the number of circumstances in which it would be used, that's not so the lawyers would get more business, but just that more people would take somebody to court. Is that what you're getting at?

Mr. Mayer: The answer is yes.

More morals of this lost pants suit:

1. Don’t open a dry clearing business anywhere within driving distance of Judge Pearson.

2. If Judge Pearson should for any reason be looking for a new job, maybe the RIAA or the CRIA could use his services. This could be a good fit.

3. More seriously - and I am being very serious now. The statutory damages provisions in the Canadian legislation have the clear potential to inflict serious collateral damage on countless victims, especially if the CRIA has its way with the forthcoming bill. As the American experience and the thus far failed Canadian attempt at mass litigation shows, this is not merely a hypothetical concern. A court may one day call such practices a misuse or abuse of copyright law, or unconstitutional, and stop them. But we shouldn’t wait for that day - which may never come. These provisions should be repealed outright, or at least limited to blatant and egregious commercial activity. Now. As far as I know, Canada and the USA are the only major countries that have such draconian provisions in their copyright laws. There are no other “statutory damages” provisions, as such, in Canadian federal law. Nor is there any need for them. We have a system of costs, injunctions, and exemplary and punitive damages that can be invoked where necessary to send a message. We have a sophisticated and fair judiciary that can be tough on defendants when warranted, using normal legal remedies. That is more than enough. For example, SOCAN and its predecessors have sued many bar owners, etc. over the decades who have refused to pay. SOCAN has successfully used traditional damages principles to make its necessary points - without the need for statutory minimum damages.

What Judge Roy Pearson is doing may seem like a black comedy, though it can hardly be the least bit funny for the defendants.

What the RIAA is doing to more than 20,000 victims isn’t funny at all. It’s an abomination. Thank heaven, they are being opposed by a few brave and generous lawyers such as Ray Beckerman and others. Let us hope that the whole concept of statutory damages is removed from the Canadian Copyright Act before it can metastasize into a very ugly mess in the hands of the CRIA and perhaps others.

Thursday, April 26, 2007

We had a really interesting panel on the copyright clearance culture, moderated by the acclaimed director Kevin McMahon - who was honoured at this year's Festival. The panel included veterans such as CBC lawyer Dan Henry, producer Kirwan Cox, and independent insurance broker Steve Beatty. And myself.

Yesterday’s (April 25, 2007) decision of the District Court of the SDNY ("Southern District of New York"), which is probably the most experienced and reliable trial court in the USA for copyright matters, will send shivers or even shocks throughout the American music industry and may have interesting and potentially very significant ripple effects up here in Canada.

The Court held- in a summary judgment hearing - that ASCAP (one of the US big American cousins of SOCAN), could not collect money for downloads of music from the Internet.

Why not? Because this activity doesn't fit the wording of the statute - which is as follows in 17 U.S.C. §106(4):

“[T[he owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;

(Emphasis added)

In turn, to perform or display a work “publicly”means:

To perform or display a work “publicly” means — (1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or (2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

The Court looked carefully at the meaning of “perform”, “publicly”, etc. and the difference between the performance and reproduction rights. It noted that there theoretically could be an overlap but that the “sweeping construction” of the statute and the “overlap to the extent proposed by ASCAP in the present case” didn’t fit with the intention of the statute.

Some choice quotes:

Although we acknowledge that the term "perform" should be broadly construed, see United States v. Am. Society of Composers Authors & Publishers, 870 F. Supp. 1211,1218 (S.D.N.Y. 1995) (Conner, J.), we can conceive of no construction that extends it to the copying of a digital file from one computer to another in the absence of any perceptible rendition. Rather, the downloading of a music file is more accurately characterized as a method of reproducing that file. See 17 U.S.C. § 1 06( 1) ("(The owner of copyright under this title has the exclusive rights to do and to authorize any of the following: ... (1) to reproduce the copyrighted work in copies or phonorecords .... ")....

The statutory language itself, however, makes clear that the transmission of a performance, rather than just the transmission of data constituting a media file, is required in order to implicate the public performance right in a copyrighted work. See 17 U.S.C §101 ("To perform or display a work 'publicly' means ... to transmit or otherwise communicate a performance or display of the 'work . , . to the public, by means of any device or process .... ") (emphasis added); 17 U.S.C. § 101 ("To 'transmit' a performance or display is to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent. ")

...

[W]e are not persuaded by ASCAP's argument that downloaded music files are indistinguishable from streamed performances because, after a certain amount of digital data has been transmitted to the client computer, the purchaser can begin listening to the transmitted portion of the music file. However, the mere fact that a customer's online purchase is conveyed to him in a piecemeal manner, each segment of which is capable of playback as soon as the transmission is completed, does not change the fact that the transaction is a data transmission rather than a musical performance broadcast....

Accordingly, we agree with the position set forth in the brief of the Recording Industry Association of America, Inc. ("RIAA") as amicus curiae, which contends that the delivery of a music file to a purchaser via a download constitutes a mechanical reproduction of the copyrighted work in the form of a "digital phonorecord delivery,m as set forth in 17 US.C. § 115(d).

Of course, US law is different than Canadian in this area where every detail matters and Canada went to some efforts to try to avoid the type of conclusion reached here. But was Canada successful?

I don’t know - but I do know that many of us now should be looking at this question yet again - and urgently.

The Copyright Board and the Canadian courts need to be very concerned about unwarranted overlapping and layering of rights, especially if the rights truly are not applicable. It is not in anyone's ultimate interest for this problem to proliferate.

One can assume that yesterday’s decision will be appealed. The Court and the Counsel involved were a substantial who’s who of US copyright law. So yesterday’s decision must be taken very seriously. Canadian SOCAN was sufficiently concerned that it filed an amicus brief, which is quite rare for a Canadian entity to do at an early stage - or indeed any stage - of an American IP case.

These decision should be of intense interest to those now involved in the Canadian Copyright Board’s Tariff 22 hearing, where SOCAN is seeking what ASCAP it has now been denied in the USA, and the judicial review of the Ring Tones decision.

Oddly enough, RIAA, as an amicus curiae, opposed ASCAP on this fundamental legal entitlement issue in the USA - i.e. whether ASCAP could claim an overlapping “performance” right when the issue was really one of reproduction. In Canada, CRIA appears not to be raising the “communication” point in Tariff 22 or to be challenging SOCAN on any substantive question of legal entitlement, but rather is engaged only in questioning the quantum and SOCAN's basis for its calculation.

Personally, I’m not neutral. I always favour accuracy and sound legal analysis. On the issue of Canada’ comparative compliance with international law, the following point must be made:

• Henderson says that “In fact, Canada stands alone among its leading trading partners as having failed to meet its commitments under the World Intellectual Property Organization treaties.”

That is a recurrent CRIA canard that has been repeated too long and too often. The fact is that Canada has not breached any international legal obligations or commitments under these treaties for the simple reason that Canada has never ratified them. Nor has Canada made any binding legal commitment to ratify them. As I’ve said many times, signing a treaty is to ratification like dating is to marriage. The latter does not necessarily follow from the former.

Unless and until we do ratify these treaties, it’s time to stop talking about failing to meet non-existent “commitments”.

One point that both Michael and Graham both fail to mention in this exchange is that there is, indeed, one very conspicuous example of a G8 country that has seriously breached international legal copyright obligations, as adjudicated by the WTO and still flouts international copyright law by failing to pass legislation to protect the rights of composers and authors to be paid when their music is played, for example, in countless bars and restaurants.

That is the U.S.A. - which has been found by the WTO to have violated the WTO TRIPS agreement and its incorporated Berne Convention provisions. I’m quite sure that China is aware of the irony of the American’s position on copyright law.

Tuesday, April 17, 2007

The 15th Annual Fordham IP conference has just taken place in New York City, where pirate DVD’s are almost as easy to buy as in Beijing - according to Sir Hugh Laddie. It was a great event - and more to come.

For observers of Canada, here are my two papers.

The first was Online Music 2007, where I talked about Canadian developments dealing with online music and the elephant in the room called “private copying levies”. I also talk about the global situation and call for a drastic lowering of prices in order to achieve a far greater resulting increase in demand and consumption for paid and authorized downloads.

The second was called RECENT COPYRIGHT ACTIVITY AND INACTIVITY IN CANADA. I discuss the major case law and political events of the last year or so and some scenarios regarding the expected new bill. I also mention the Captain Copyright affair and how Access Copyright responded relatively quickly and well to criticism that was recognized as valid, unlike certain other associations that cannot admit they ever were or could be fallible - for example by suing 12 year old children.

Justice Roger Hughes of the Federal Court of Canada talked about extraterritoriality, and provided a paper for the materials entitled Jurisdiction of the State Respecting the Incorporeal by his law clerk, Ms. Caterina Chiocchio. Justice Hughes also spoke about the next ten years in patent law.

This AP story about China pointing to Canada could be amusing if there wasn't so much at stake.

Wang Ziqiang, a spokesman for the National Copyright Administration, argued other countries such as Canada have more serious piracy problems.

He cited a February report by the U.S.-based International Intellectual Property Alliance that put annual losses to piracy in Canada at $16.78 a person, while the figure for China was $1.68.

First, don't rule out the possibility that the USA put China up to this silly comparison. Stranger things happen in the world of trade and diplomacy. Also, it's quite clear that there is a huge "sky is falling in Canada" anti-piracy campaign underway in the lead up to the new copyright bill and other IP related efforts. The story suits China and the USA - both.

Nobody defends outright piracy in the true "counterfeiting" sense. But the industry is also happy to allow and even encourage confusion with the issue of parallel imports - which by definition are perfectly legit goods that come through a channel other than the Canadian exclusive distributor would prefer. Parallel imports are good for competition and good for consumers. Our Supreme Court is currently deliberating on a major case on this issue, in which I was involved on the pro competitive/consumer side.

Second, I'm surprised at the modesty of the numbers. According to the USA's Ambassador Wilkins as reported by Michael Geist, Canada is responsible for as much as $30 Billion a year in losses due to piracy.

That's almost $1,000 a year for every man, woman and child in Canada. That's a lot of fake Gucci purses, so-called "illegal" downloads, and phony brake pads. If this is true, it's utterly amazing that Canada still manages to exist as a viable nation. The number, of course, is pure conjecture and there is no credible basis for it.

As Sir Hugh Laddie pointed out in an electrifying panel of April 13, 2007 on the China complaint at the Fordham conference, the USA remains in clear and serious violation of international copyright law as adjudicated by the WTO and it is almost as easy to buy pirate DVDs on the streets of Manhattan as in Beijing. In fact, I understand that pirate DVDs have gone "underground" in New York only in sense of now being openly available in subway stations.

Here, for your research purposes, is the brief Hill Times report, as provided by a third party:

Ottawa, April 16, 2007:

Copyright bill to be tabled before summer if no election: sources

The Conservative government is preparing to table its copyright reform bill if there is no election this spring, The Hill Times is hearing.

Sources say the bill will depart in two key ways from the last piece of legislation, tabled by the Liberal government in June 2005, which died on the Order Paper when Parliament dissolved for the 2006 election. Reflecting the policies of the Conservative government, the bill is expected to depart from the Liberal legislation by providing stronger legal protection for rights-management technologies (also known as technological protection measures, or copy and access controls); as well as an educational exception for classroom access to free web materials, addressing concerns raised by the Council of Ministers of Education, Canada. The bill has also undergone a large amount of technical fine-tuning, and although some issues remain unresolved, bureaucrats in Canadian Heritage and Industry Canada will be under pressure to get a bill before Parliament this spring if the government decides not to trigger an election. Some observers now consider it unlikely that, this spring, the Conservatives will try to engineer their defeat on a confidence vote in the House because, given the political environment, the party does not seem to have a clear opportunity to win a majority government. Copyright is considered one of the most divisive and lobbied areas of federal policymaking. The government is not expected to introduce a bill in advance of an election because there will be unhappy industry and public interest groups, creating unnecessary nuisances at a time when the government is trying to focus on campaigning.The previous bill proposed to implement two treaties of the World Intellectual Property Organization, which the former Liberal government signed in 1997. Action on implementing the treaties has come at a slow pace largely because industry groups are divided about how to proceed with amendments.—Simon Doyle

If the Bill lives up to the billing and gets passed as such, it will be a very bad development for Canada and quite possibly for Canada's New Government.

On the other hand, if the Bill is introduced but somehow doesn't move forward to committee before the next election, that would be a win/win for everyone - at least for a while. It might postpone and ultimately even provide sufficient time to stop what could be a very serious train wreck for all concerned....

Of course, Canada's New Government could also listen to the other stakeholders - who actually have some positive suggestions that would actually benefit major Canadian interests and not cause harm...and Canada's New Government should live up to its March 19, 2005 Policy Declaration...

Some of these other points would be very easy to draft - and would not cause any delay...

Monday, April 02, 2007

I listened to the live stream of the Apple/EMI news conference this morning from London.

The good news:

• Apple will be providing the option of premium priced EMI material DRM free and at double the bit rate for higher quality - 256 kbps AAC encoding.• Any tunes already bought from iTunes can be upgraded for USD $0.30.• Steve Jobs hopes that other majors will soon follow suit.

The bad news:

• The bad news is that these premium singles will cost 30% more.

I don’t know how many times I heard Jobs and EMI Group CEO Eric Nicoli refer to “DRM Free” music. It seems that DRM is becoming the “D” word - even in the highest corporate musical circles.

Interestingly, Jobs himself kept repeating that DRMs can already be stripped form iTunes songs by making a CD copy - which lots of folks know. This is a “hassle” as he calls it - but not an insurmountable one. It will disappear now - but for a price.

Jobs also explicitly mentioned the SONY root kit episode as an example of how DRM doesn't work.

Nicoli conceded that file sharing might become easier now. The implication here is that any losses due to increased private copying due to file sharing will be more than capitalized into the purchase price of the download. It will, of course, be difficult to separate out what relative premium consumers notionally allocate to the two improvements - i.e. “DRM free”, and higher fidelity. It remains to be seen what the take up will be.

All of this goes against the suggestion by Sandy Pearlman and others of lowering the price to a nickel or some other attractive price point and thereby increasing unit quantity sold by a far greater factor than the lowering of the price - in other words far greater revenue for the record companies and artists. Remember, the marginal cost of delivering a tune online is or will be very close to zero. Many of the costs associated with traditional sales of vinyl and CDs have simply vanished - i.e. manufacturing, distribution, shipping, inventory, accounting, etc. Consumers have yet to see this dividend.

So greater revenues = greater profits. In direct proportion. It could be that simple.

It’s Economics 100 time.

At the right price point and with friendly online music stores, unauthorized downloading and file sharing would all but disappear - and all without the need for increasingly draconian, technologically harmful and interventionist copyright laws.

So - today’s announcement might be seen as the right move technologically but in the wrong direction on cost. Hopefully, the latter will get corrected before it’s too late.

And where are the Beatles? Both Jobs and Nicoli said they too wanted to know.

And therein lies much of the problem in the music industry today - at least to this old curmudgeon’s ears. We have nobody of the quality of the Beatles, Elvis, or Frank Sinatra - or even the Stones or early Michael Jackson - who can sell multi-platinum simply by virtue of compelling quality.

The majors are left with a few vaguely OK current “stars” that offer passing entertainment, lots of ambition, and “MUCH” mediocrity. And it does take a lot of marketing hype to convince lots of people to pay for this music. But there is not a lot of music that people really want to buy in great quantities just because it’s irresistibly great music that crosses over a vast range of categories.

There’s also the matter of intense competition with other new forms of entertainment, including video games, DVDs, etc., etc. that drain budgets very quickly.

One thing ought to be clear, if anything. Suing customers into submission mostly certainly isn’t the answer. It’ll be interesting to see if EMI achieves enlightenment on that front.